Ep. 11 - Entrusted - A Model For Good Stewardship in Estate Planning

Narrator: [: 00:00:00

Welcome

Ledly Jennings: back to the good steward law and wealth podcast for another episode. I think this could be episode 12, somewhere around there. We are getting a lot under our belt. So it's exciting. Um, and today what I wanted to talk about is entrusted planning. It's a model for good stewardship in a state planning. Um, the basis comes from a book called entrusted.

and I read, uh, reference it [: 00:01:00

0. Um, it's, uh, from a financial advising standpoint. But they hit on a lot of what entrusted does and how to mesh the financial side with the estate planning side. So I've been really excited about the concept of entrusted planning. Um, and to illustrate that starting with wealth 3. 0 mentions in the book, a lot about the saying that you may have heard.

's a common expression and I [: 00:02:00

And a lot of advisors use that phrase to encourage planning, um, to plan ahead. And in fact, when I started becoming an attorney, that was the mode we use. We use that saying all the time to. Encourage people to begin planning. But when you use that saying you're operating out of a position of fear, um, rather than power.

So I don't always like operating out of a position of fear. If you're motivating someone by fear, just to avoid negative consequences, it doesn't really have a purpose behind it and they don't have power behind their plan. So what I like to do and what wealth 3. 0 and entrusted, um, talk about is operating from a hood.

ting your family in the next [: 00:03:00

Um, it goes on to say another version of that is transferring opportunities. Instead of assets over multiple generations. So all that to say, what it means is. It gives you a way to take your values and your principles, combine it with your assets and have a impact within your family for multiple generations.

the disciplines that go into [: 00:04:00

Um, one was entrusted families know who they are and what they believe. So they know their values and they know their purpose on this earth. And the second one, entrusted families prepare the family for the wealth and not just the financial wealth for the family. So that's education and training. They prepare kids and grandkids with education and training to be ready for what they're going to inherit and what they're going to steward.

Um, Third one, entrusted families maximize the positive benefits of financial wealth and minimize the negative effects. So that one kind of explains itself. They are being good stewards of their wealth and maximizing all the positives and the impact that it can have while minimizing any negative effects that you may see.

heriting a lot of money. Um, [: 00:05:00

What were the inputs that went in to build the wealth? So if you're focusing on the inputs, Rather than the end result and the fire is going to build itself. So I really love that saying, um, entrusted families are generous. So they give back to their community because they want to have an impact in their community and trusted families, preserve and protect.

Well, that's where I come in. A lot of times is to help families preserve what they built through legal structures that protect them. Um. And they preserve it for multiple generations. So it's not something that's built over 1 generation and lost by the 3rd. It's preserved and protected the last thing entrusted families design and implement dynamic governance.

out a lot today is a family. [: 00:06:00

Well, it really starts with the family itself and the children. Um, there's a proverb that goes in to say, give me neither riches or poverty, give me daily bread. So that's kind of like the Flint and kindling that goes into the fire. The riches will take care of themselves. Give the daily bread, the income that sustains the family provides for them and enables them to, you know, live.

just sit on their hands and, [: 00:07:00

And really, I think about it like, uh, A hierarchy of needs you, when you do in a state plan, you don't always have to be thinking about, Oh, I want to pass on something to next generation. You know, you're the first level of your hierarchy is. Provide for you and your spouse. Make sure you have the income and the wealth to live your life.

And then the second hierarchy is when you have kids, you got to make sure you have that same income and wealth to provide for their kids and make sure they're fed their clothes, that kind of thing. But then the third hierarchy, when you really get to where you're going is your job. As a family is to educate and deploy children into the world to be good citizens.

So that's kind of the hierarchy of the entrusted planning. So when we're talking all this estate planning, we're not always talking after death. We're talking while you are living. Um, our primary responsibility to our kids is to give them the tools they need to be self sufficient in the world. And those tools.

Can be a [: 00:08:00

And those assets can then be used for impact. If they have the proper tools. Uh, we did a impact study with my law firm after one year in business, just to see. Were we actually making a difference? And just basic numbers say we had over a hundred clients or so, um, that did a state plans with us. And if you add up all their wealth, it was well over 200 million that they did.

. And when you look at it at [: 00:09:00

Is usually staying in the community. It's going into a small business, it's going to churches, it's going, you know, into the economy and having a bitter, bigger impact because those families that you passed on the wealth to are prepared for it and they have it in a protected manner. Um, so the impact can be pretty big, but a lot of people, um, start thinking.

Well, if I really want to have an impact, why don't I just leave everything to charity? And I think charity is a great thing, uh, because you're able to pick out something you're passionate about and leave money to that organization. But I see charity as an end all be all. Once you leave the money to the charity, it's theirs and it's done growing.

hat I really like to do with [: 00:10:00

And one way to do that, that I really like with the family is set up a family, a donor advised fund or a family foundation. Where your family is on the board of this, um, foundation or this charitable organization, because it's your money. So every year you're deciding where to give this money, but that decision takes place at the family table.

the older generation decide [: 00:11:00

And it doesn't have to be a lot of money. It could be, you know, that you start out with a thousand dollars in a donor advised fund. And each year you decide how you're going to give that. Yeah. But what I really like about this model is it implements a tradition that could last generations because the whole family is involved in it.

And what he said, and he advised doing is maybe when the kids turn 12 or whatever age you want, they come prepared with a proposal that year for how they want to give the money. So it brings the kids into the situation and they're getting to experience the power of giving and the impact it can have.

charitable giving comes up a [: 00:12:00

Um, in what we do. So. There's a way to entrust your family in the charitable giving process. But when we get down to the technicalities of all this is how do you set up something that entrusts your family and empowers them? Um, well, we can start with kind of the history of trust themselves. So most of what I do is trust.

How did they start? You know, it started way back. I think I was reading 17, 80 something, you know, way back in England. When they set this up, what, what they needed to do is, you know, men own land or farms, but they would have to go off to war or crusades and they They'd leave their farms there and they'd always come back and the farms would be gone or taken over by someone else.

hat is called the trust law. [: 00:13:00

And it is their duty to protect it, but the key to all that, it really wasn't about the legal structures. It wasn't about the land itself. It was about naming a person and they held that person responsible. So you had to name someone you trusted, but it was about that person. Um, today, kind of the law has evolved more into, it's all about the legal side, the wealth side, and less focus on the trustee themselves.

But the trustee is where the real magic happens. And that's how, that's where the word entrusted comes from is. A trustee that you entrust with your wealth and your assets for your family. So you have to train that person, you know, that person, that trustee has to know your family values. You, they, you have to have a mission statement.

e doing all this? Well, it's [: 00:14:00

And it's a great way to entrust and empower, um, someone to have an impact on your family. And that starts with the technical side is a family structure. So you have to name leaders and a way to elect leaders. Maybe when you pass away, you, you name your kids as the trustees, but when you get to the next generation and there's.

12 grandkids, how do they elect a leader? You need to have a management structure for electing a leader. Uh, that's number one. Number two, you need to implement a governance system. This is like, uh, our constitution. This is how we elect those leaders, but also how they are governed and managed and, you know, kept in line with checks and balances.

got to have goals. that are [: 00:15:00

They have this family structure set up and then they have annual meetings when someone may need, maybe they need to elect someone new. Then they have an annual meeting, you know, at their family, uh, cabin, or they rent a house on the beach somewhere and have these family, family meetings, um, to elect new members.

elves. It's their job to run [: 00:16:00

But at some point. They reach closer to their teammate and there's a point where they're both running together. So that's the exchange zone. You know, they're both running together before they hand off the baton. And then when they hand off the baton, it's that other person's turn to run the race by themselves.

But the key there is the exchange zone. So if you're having these family meetings and the governance set up, that's The younger generation is involved in all these decisions and they see it played out by the, the people ahead of them so that it creates that exchange zone, that, that time of training to where they're able to pass it on to the next generation in a successful manner.

And this is how I set it up with a lot of my trust that we mentioned, you know, sometimes with the trust, we name a trust, a co trustee at age 25. So the kids can have someone there with them work in that exchange zone for a while. How many every years we did appropriate before they pass on the baton and say, now you're your own trustee.

[: 00:17:00

That's a bridge builder. So you're building a bridge. One, uh, thing that comes to mind is a lot of people come to me and don't have a plan in place. Someone never took the time to build the bridge and set up the structure. So I don't want any of my clients to be that person. So we need to plan ahead and set up the structure for success.

like, um, a trust is what we [: 00:18:00

So take a family, um, Let's see how I ran this example with there's someone, a family that has 30 million, so it's a ton of money, husband and wife, they have four kids and then maybe their four kids each have four kids. So if you just look at the breakdown of that, by the time you make it to the third generation, so the great grandchildren.

dividing the wealth. That's [: 00:19:00

So, um, when we look at a state tax, honestly, that is almost cut in half. When I ran the numbers on that same family, if you take in a 40 percent of state tax, which would happen with zero planning on a 30 million state, then each kid only gets about 270, 000. So from 30 million down to that little number, which is still a big number, but not compared to 30 million, then you can show how much impact.

Poor planning can have. So what I like to do when I think about planning is how can we keep the assets and the wealth together that way it's growing, but still empower the proper people and one good method for the entrusted planning is creating a trust. But within that trust, it's first built on the family governance that you set up.

a way that's never, um, at a [: 00:20:00

So that is how we elect trustees is that ongoing system based on the governance that you set up. And what is in that trust? Well, it usually is a family LLC. So a family business that owns all the assets. Maybe it's real estate. Maybe it's other businesses. Maybe it is, um, investment accounts, you know, whatever it is, a family LLC owns that the board of trustees can appoint a manager.

To manage that LLC, make the day to day decisions. And then that manager answers to the board of trustees who is answering to the trust where the values are set up. So it's a governance that can last for generation and generation, but an even bigger impact that it can have is that family LLC can make loans to the family members.

ants to start a business. Or [: 00:21:00

We will loan you the money at low to no interest. So it's a way to build wealth for each family member. And this can act as somewhat of a family bank. Um, There's a, I think it was a, either a book or an article about the Vanderbilt family that, you know, um, Vanderbilt was one of the richest men in the history of the world.

And here recently is within the last, uh, 20 years, maybe that they had a reunion for the Vanderbilts to get together. And there was tons and tons of heirs, but only one of them was worth more than a million dollars. Um, And I don't quote me on this, but I think it was Anderson Cooper who just happens to be a Vanderbilt heir and he kind of built his own money.

o do with what he inherited, [: 00:22:00

Um, and it's because they set it up in a way to where the family legacy could be passed on. And they, they really bought into the family bank, uh, motto to have a impact. And now each Rockefeller is productive. I don't know about everyone, but they're productive in the world, but they're also big into charity, politics, whatever it is.

ant to set it up in a manner [: 00:23:00

I don't want to come out of a place of fear. Um, we want to implement training systems, family, governances that can work for the family while you're living, but also for the next generation and the generation after that. Um, If you're interested in any of that, I'm happy to sit down and talk with people on how you set up the trust, how you set up the family governance and workshop.

Some ideas of how do we even decide our family values? Um, do we have a family retreat and sit down and decide those values and mission statement? Um, I have templates, you know, all kinds of things that can enable you to do that. So, um, that's the, the model here. And I encourage anyone to read the book.

Well, 3. 0. Entrusted, um, and explain how we can be good stewards of our wealth. Thank you for listening.

financial future, visit good [: 00:24:00